The cost of insurance gets higher

The increase in piracy activity in the Gulf of Aden and off the coast of Somalia is proving costly for tanker operators one way or another.

The increase in piracy activity in the Gulf of Aden and off the coast of Somalia is proving costly for tanker operators one way or another.

The increase in piracy activity in the Gulf of Aden and off the coast of Somalia is proving costly for tanker operators one way or another.

As the piracy threat has intensified, the cost of insuring ships sailing through the Gulf of Aden on voyages to or from the Red Sea and the Suez Canal has gone up.

The alterative, rerouting ships around the Africa's southern tip instead of the Suez Canal short-cut, is also pricey.

Avoiding the Suez Canal and sailing via the Cape of Good Hope means that a tanker sailing from Saudi Arabia to the United States (US) would add 2,700 miles to its voyage, according to the US Department of Transportation's Maritime Administration.

It calculated the longer route would raise annual fuel costs for a tanker by about $3.5 million.

Moreover, it said using that route would mean the ship could make only five round trips per year instead of six, cutting delivery capacity by 26% percent, reports said.

But a reduction in shipping capacity caused by ships diverting around Africa may be a blessing in disguise, according to some analysts.

"Because there are so many vessels plying the seas right now, it makes sense to take the leisurely way around Africa. You're removing capacity from the industry and helping to put upward pressure on freight rates," said Jim Wilson.

Sources in the shipping industry say that while some companies have decided to take their oil tankers around the Cape of Good Hope to avoid the piracy threat, others have been reluctant to shoulder the extra expense.